We have had some signs of economic weakness recently, largely centered (in my opinion) around weakness elsewhere in the world and winter weather here. And we will probably see more. There has been considerable uncertainty about whether we were going into another “snow-down” slowdown like last year. This made last Friday’s jobs report an important indicator of where we stand.
The suspense is over, and the news is good. In fact, it’s much better than expected: 295,000 jobs were created in February, well above the 235,000 jobs that were expected. The unemployment rate dropped from 5.7 percent to 5.5 percent, and the underemployment rate dropped from 11.3 percent to 11.0 percent. These are good numbers.
As you can see in the chart above, looking at jobs created year-on-year, we have moved above the highest level we saw in the mid-2000s and are approaching the levels we saw in the late 1990s. Employment growth is approaching boom levels, a phrase I do not use lightly. You could argue we needed that, given the sharp decline during the financial crisis. And that’s true—but job creation is still approaching boom levels.
Wages, however, have still not started to accelerate. Average hourly earnings were up only 0.1 percent for the month and 2.0 percent for the year, both down from the prior month. In the chart below, you can see that wage growth, after a substantial recovery, has actually declined over the past several months.
This is a problem. There are several possible reasons for it, none of which is particularly good:
Whatever the reason, wage growth remains the real puzzle in the data, and one that gets worse every month. Either of the second two reasons should be corrected as job growth continues. We still have another six months or so before the gap really starts to get worrisome, but it’s something to keep an eye on. For the moment, I am simply happy that job growth continues at a strong level.